Federal Reserve Begins Quietly Suffering Losses

Long time readers will know one of my many beefs with our solutions are how we are obfuscating the losses ... and using the Federal Reserve as the tool. Since the American taxpayer is fed up with the bailouts, we are doing an end around of Congress and using the Fed as our "bad bank" - which is 100% opposite of its reason for existing. I've been saying for a year now that in the end, the Fed will suffer losses quietly when our attention is elsewhere in the "out years". What happens on the Federal Reserve balance sheet apparently is ok, because it exists in some parallel universe or is "hard to understand".

Well, I guess we don't even have to wait that long (I figured 2-3 years) - already the losses have begun from the Federal Reserve's first purchases ... remember that Bear Stearns bailout just over a year ago? We've just suffered the first $6.6 billion in losses. By we, I mean all of us. This is real money. I would just like to REMIND you that the same Fed Chief who missed the entire mortgage mess, the same Fed Chief who claimed we'd grow in 2nd half of 2008, the same Fed Chief who says he sees green shoots, was the SAME Fed Chief who told us the taxpayer WOULD NOT take a loss on the Bear Stearns portfolio and in fact we could potentially make gains.

And this is who we are lauding.

Via Bloomberg

• The Federal Reserve released its most detailed breakdown to date on the types of assets it accepted from Bear Stearns Cos. a year ago and the cause of losses on the portfolio. Today’s report follows pressure by lawmakers on the U.S. central bank to identify the collateral for its record extension of credit, along with a lawsuit by Bloomberg News in November.
• The biggest losses in the $25.7 billion portfolio of Bear Stearns assets as of the end of last year came from commercial and residential mortgages.
  
• The Fed wrote down the value of commercial mortgage holdings by 28 percent to $5.6 billion and residential loans by 38 percent to $937 million as of Dec. 31, the central bank said in a report today.

So that's a cool $6.6 Billion on a $31 Billion portfolio ... or -21% loss on something that won't cost the taxpayer anything per Ben. Just remember, if we hold these loans long enough they will rebound - the game is not over yet and profits lay just around the corner once the commercial and residential markets rebound. In 6 months.

This is a disgusting shell game, where losses are suffered in dark corners because those in power know the citizens, who allow almost anything in this country, have finally put their foot down to the politicians. So the rogue Federal Reserve will do the dirty work.

Anyhow, it's all good - buy stocks. Let Uncle Ben make all the worries go away ... the next few trillion of collateral of residential and commercial loans (err, umm - the EXACT same thing they just suffered huge losses on) I am sure will work out... any "minor" losses are going down the rabbit hole. See? Painless. [Mar 31: Financial Rescue Pledges Now $12.8 Trillion]

We're all winners here. Just trust us.

EDIT 6 PM: Sorry for my rant, I see I made a careless error - the totals I listed above were what remains in commercial and residential loans. The true loss is only $4.2 Billion (so far) instead of $6.6 Billion (so far) - but really, what's a few billions among friends. The percentage loss is greater than I wrote as it is >30% in total but there are non commercial/residential mortgage loans in the quality assets we took over from Bear.

(click to enlarge) - hat tip to Zerohedge


I also realize as a pseudo fund manager I need to stop thinking like a US citizen who cares about the direction of the country, and more like a Wall Street speculator....

In that case, this is all great news since "we" have successfully shifted the vast majority of our burdens onto the peasant class (read: taxpayer). Now its time to make money in stocks, unshackled by burdens of the past.

There... my mind is much more clear and I no longer feel angst.